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Jax Tax, Tax Attorney

Category: Tax

Satisfied Customers: 1377

Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions

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5 heirs inherited real estate equally. Due to the wrong will

Resolved Question:

5 heirs inherited real estate equally. Due to the wrong will being filed with probate the subsequent title will show 4 owners and an upcoming sale of the property will produce only 4 1099's. The 4 receiving heirs are willing to give the 5th heir her proper share. Will capital gains by nominee resolve the lack of a 1099 for the 5th heir problem?

Jax Tax :This is real simple as the actual deed means nothing. Each of the 5 persons will report of sch D their share of the basis and sale price. This will create a mismatch between the 1099s and the sales price listed on the 1040 of each, but a small annotation explaining will suffice.

Customer:

I don't totally understand. How will the annotation tie the income reported on the 4 1099

Jax Tax :I have a better idea.

Customer:

I'm listening

Jax Tax :Each of the four persons can simply file 1/4 of the transaction then each of the 4 listed owners can gift 1/4 of the 5th persons net share. So long as the payment from each of the 4 listed owners does not exceed $13k each, the gift is not reported or taxed.

Jax Tax :As for the initial question, you would simply list less than hat is reported on the 1099 on the sch D. The explanation will explain why less is reported. This would be fine. Otherwise, ask the closing firm to report to all five.

Customer:

the closing firm will be required to distribute the money per the title

Jax Tax :All and all, this can be dealt with easily. If there is a 5th owner, simply report on sch D only 1/5 with a written explanation on the 4 listed owner's returns why the proceeds listed are less than the 1099 or report it 1/4 each and gift the.funds to the 5th party.

Jax Tax :The distribution of the money is of no consequence. You can deal with it privately and report it as such.

Customer:

the amount will be greater than 65K from each of the 4 receiving heirs

Customer:

I thought that possibly that by declaring capital gains by nominee would generate the necessary 1099s for the 5th heir

Jax Tax :OK. Why then was the property inherited by 5 people but only titled to 4?

Customer:

The correct will dictated such

Customer:

the state of Ma., because of the wrong will that was filed, only title the 4

Jax Tax :So the best way is to report the sale 1/4 to each titled owner. Then the gift exceeding $13k will be reported on form 709 from each of the 4 owners. There is still no tax, bit the 5 million lifetime exclusion is reduced by the amount that each.of the 4 gift to the 5th over $13k. Just one extra form on the 1040. No tax to anyone.

Jax Tax :Any preparer can handle it.

Customer:

I just lost your last entry

Jax Tax :It is saved in the chat. This is the best way given the circumstances. You can still opt to report 1/5 on each return with a written explanation as to why the entire 1099 is not reported and the information of the 5th person reporting. Ill change the format to make it easier to see.

In my original question, I asked if the IRS process of assigning capital gains by nominee could be used. This appears to me as the easiest way to create 1099's for the 5th heir, but I'm not sure that it is applicable to a inherited real estate sale.

The IRS using a nominee status is typically when a property is transferred to a person with a lower tax bracket alley to avoid tax. Not what you are doing. If that is what you are doing, IRS would use nominee rules to charge the party trying to avoid tax, the tax that would have otherwise been due.

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. OrvilleHesperia, California

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